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MMPA reform will benefit Missouri’s court system

Consumer protection litigation developed in the early 1900s to protect American consumers from fraudulent and deceptive business practices in commercial transactions. Initially, Congress enacted amendments to the Federal Trade Commission Act to protect consumers, and soon after, many states enacted their own consumer protection statutes.

These laws sought to maintain a careful balance between protecting consumers and preventing the proliferation of lawsuits that ultimately harm both consumers and businesses.

Joanna M. Shepherd, Emory University School of Law

In recent decades, many of these consumer protection laws have devolved from their original intent. Many states have seen surprising legislative and judicial overcorrections that are based on the misguided idea that additional consumer protection litigation always protects consumers more. Courts and legislatures have gradually abolished many of the procedural and remedial protections designed to ensure that state consumer protection acts do not become all-purpose business litigation statutes. As a result, many consumer protection acts have essentially become consumer litigation acts.

Missouri has been one of the worst offenders, and Missouri consumers are suffering as a consequence. Although the Missouri Merchandising Practices Act was enacted to protect consumers from unfair and deceptive commercial conduct, it has been applied in ways not originally intended by the Missouri legislature.

For example, Missouri is one of only a handful of states that allows punitive damages under its consumer protection acts. Although many states allow double or treble damages, at least these exemplary damages are fixed to compensatory awards. In contrast, punitive damages under the MMPA can far exceed an award of compensatory damages

Furthermore, Missouri allows punitive damage awards in class actions. Punitive damages in consumer fraud cases are premised on the notion that a large award provides incentives for attorneys to take cases they otherwise might decline because of the small monetary amounts involved in most consumer fraud actions.

However, this rationale does not apply to class actions; the high damage awards resulting from aggregated claims provide enough of a monetary incentive for attorneys. As a result, punitive damages in class actions are not only redundant and therefore unnecessary; they create an even greater incentive for lawyers to file claims that are not in the interests of consumers as a whole.

Missouri is also unusual in that it does not require plaintiffs to show that they relied upon any misrepresentation by the defendant. Many states require the plaintiff to show that the business engaged in an unfair business practice that caused the plaintiff to enter into a transaction that resulted in his or her harm. In contrast, the MMPA does not require the plaintiff to prove reliance or how the defendant’s conduct influenced purchasing behavior. As a result, plaintiffs can recover even if they were unaware of the unfair business practice they are challenging.

Thus, while the MMPA was initially celebrated as empowering consumers, the expansion in the original legislation tipped the balance from protecting consumers to encouraging excessive consumer litigation. Indulgent amendments and lenient interpretations have encouraged enterprising litigants and lawyers to bring claims, resulting in a dramatic increase in consumer protection litigation. Whereas the number of reported CPA decisions increased by an average of 188 percent in states from 2000 to 2009, the number of reported decisions under the MMPA increased by an astonishing 678 percent.

The surge in consumer protection claims under the MMPA inflicts costs on consumers through higher product costs, an overburdened justice system, and frivolous litigation. Both litigated and threatened consumer protection actions impose significant costs on businesses. Although these costs are initially borne by businesses, they are ultimately passed on to consumers through increased prices, lower product quality, lower wages, and lower employment. The severe increase in litigation also burdens the state’s civil justice system.

Existing data suggests the MMPA has encouraged frivolous consumer protection lawsuits. For example, a Missouri resident recently brought a class action against several retail gasoline stores claiming that an unfair practice occurs every time a consumer buys higher octane fuel from single-hose gas pump and incidentally receives a residual amount of lower octane fuel lingering in the hose from a prior fueling. Another example is a class action brought by customers of an internet service provider who claimed that a “free” upgraded internet service didn’t deliver the speeds promised. Similarly, a class action brought by a Home Depot customer six years after renting a piece of equipment claimed that an optional damage fee waiver with a $2.50 charge in the equipment rental contract she signed six years earlier was “automatically imposed” and “worthless.” If these marginal cases offer little or no social benefits but impose tangible social costs, then expansive consumer protection litigation harms consumers.

Empirical scholarship, economic theory, and common sense suggest that certain reforms could mitigate or reverse the MMPA devolution from consumer protection to consumer litigation. First, including a “reasonableness” inquiry for MMPA claims will ensure that the act protects and compensates deserving consumers, and it ensures that businesses will not incur costs to protect against unreasonable consumer reactions to a business practice. Second, requiring plaintiffs to prove that the unfair business practice caused them to enter into the transaction that injured them will ensure that compensation reaches those consumers that are actually misled and harmed by an unfair business practice. Third, prohibiting punitive damages in class actions will prevent many of the most frivolous and socially harmful suits. With these protections, the MMPA will actually protect consumers instead of harm them.